The conflict between rising house prices and affordable mortgage rates

You could be forgiven for believing that as house prices rise, mortgage rates would rise in correlation. But as house prices reach a record high in the UK, mortgages rates remain the most affordable in a decade. This lack of symmetry has many contributing factors, including the housing market itself, low unemployment rates and mortgage approval rates.

As of March 2018, average house prices rose by 2.7% over the previous 3 months to reach a record high of £227,871. This increase in house prices is a consequence of the UK’s limited housing market – housing developments are not meeting housing demands and so the lack of competition in the housing market leaves homeowners with very few alternatives.Despite this, mortgage rates are the most affordable in a decade. In 2007, mortgage payments accounted for almost half of homeowners’ income (48%). Today, mortgage payments account for less than a third of homeowners’ income (29%). This could be attributed to reduced unemployment rates in the UK. As unemployment rates are currently the lowest since 1975, this has created a new group of potential homeowners. Keeping mortgage rates low encourages the employed population to take that step onto the housing ladder.

However, this has increased the demand for housing and so adds further strain onto the limited housing market. Regardless of the current affordable mortgage rates, mortgage approval rates for First Time Buyers dropped in comparison to the previous 12 months and mortgage applications are down 3.3%. This may be due to the predicted future of mortgage rates in the UK. Economists expect two interest hikes this year, with the first expected in May 2018.

A limited housing market, growing pressure on housing availability and lower mortgage approval rates means joining the property ladder can seem daunting. But the good news is that it is still possible! If you would like to talk to a member of our team to find out what level of deposit you may need, and what your borrowing capability is, we’d be happy to talk. Our whole of market financial advisers can help you achieve a better understanding of the housing market and aid in the process of obtaining a mortgage.

If you’d like to speak to an independent adviser, contact us today on 01639 26222 or send us an email via this link.

**Please be aware that your property may be repossessed if you fail to keep up with repayments on your mortgage.